The extension of the car scrappage scheme is not only going to benefit motorists, motor manufacturers and dealers - but also the Treasury who stand to reap millions of pounds in increased VAT payment.

Birmingham VAT specialist Jason Croke of Haines Watts has calculated that the Treasury should already have earned in excess of £8 million as a result of the initial scrappage scheme - and it stands to make even more with the extension of the scheme to cover a further 100,000 vehicles.

"The car scrappage scheme is a good money earner for the Treasury. It may look as though they are giving money away but the Treasury is the overall winner. And with VAT due to rise to 17.5% from January 1st, their income could be even higher."

Mr Croke said that the £2,000 discount on new car purchases consisted of £1,000 from the government and £1,000 from the manufacturer. The initial £300m pledged by the government enabled about 300,000 vehicle sales to be funded by the taxpayer.

"With VAT at 15%, this means that for every new car sold that costs more than £7,668 to buy, the government got back their £1,000 contribution in the form of VAT. The average price for a car is approximately £9,000 - £10,000, so on 300,000 vehicles, the Treasury will have earned in excess of £8m.

"But they would have earned even more if the scheme had been introduced when VAT was at the higher rate of 17.5%. Guess what? VAT goes back up to that level in three months time - just at the point when motorists might well be thinking of buying a 2010 registered vehicle.

"It's a clever scheme, giving much needed help to the motor industry (although that will include overseas manufacturers), motorists - and the Treasury," said Mr Croke.

However, there may be a sting in the tail. If old cars are being replaced with modern, more efficient vehicles, the tax take from road fund licences will drop as newer cars fit into the very low tax bands. In addition, their greater fuel efficiency will mean motorists will pay less at the pumps.

"Consumers with new cars are less likely to change them for some time to come - leaving the motor industry with fewer future customers and the government not getting enough tax via car sales. There's a lot of fingers crossed in government - but there again, the current government might not have the long term problem the scheme is potentially creating," said Mr Croke.